* Marchionne thinks size crucial to survive crisis
* But will have limits to spending on Opel
By Gilles Castonguay
MILAN, May 28 Few doubt Sergio Marchionne's
courage when it comes to taking on a challenge, but there are
limits on how much Fiat SpA's FIA.MI hard-driving chief
executive will spend in his ambitious plan to takeover Opel.
Marchionne has taken a lead in shaking up a car industry in
crisis, not only calling for its consolidation but also making
the Italian group a champion of it.
In April, he formed a partnership with U.S. car maker
Chrysler LLC [CBS.UL] before moving on to make a bid for Opel,
the troubled German unit of General Motors Corp (GM.N).
"He has surprised everybody with his speed and audacity,"
says Eric-Alain Michelis, analyst at SG Securities. "Nobody else
has been as courageous."
By combining them with Fiat's car business, Marchionne would
create a group that would rival Volkswagen AG (VOWG.DE) in size.
And size is important for the 56-year-old Italian-Canadian,
who has argued that no car maker could survive the crisis
without making more than 5 million cars a year.
Marchionne has dismissed comments that he is trying to build
an empire, saying he is only interested in keeping Fiat
profitable. "We are trying to drive an argument purely based on
industrial efficiency. That is the only thing I care about," he
once told analysts on a conference call.
After clinching a partnership with Chrysler by getting the
U.S. government -- rather than Fiat -- to pay for it, analysts
do not doubt his ability to take on ever greater challenges.
But Opel could turn out to be one that he eventually decides
to decline. It has proved to be more difficult than Chrysler,
and analysts doubt Marchionne is ready to pursue it if it ends
up jeopardising his strategy of creating a group by spending as
little money as possible.
"If he sees that the talks risk dragging on for three or
four months, he will pull out. He is very strict," a Milan
analyst said, adding he suspected Marchionne had a clear idea of
how much Opel was worth and would not be willing to offer more
The first problem is the German government's failure to get
a deal to provide Opel with temporary financing if GM goes
The second is the Opel union's opposition to Fiat's bid for
fear of plant closures and job losses.
The latest round of talks has pitted Fiat against Magna
International MGa.TO, whose bid the union and some politicians
NO STRANGER TO MERGERS
The chain-smoking troubleshooter is no stranger to
Marchionne was chief executive of Alusuisse Lonza when it
joined Canada's Alcan in 1999 and later added France's Pechiney.
Passed over for the top job at the combined group, he took
over at Lonza Group LONN.VX when it was split from Alcan. With
a tightly focused strategy, he turned the chemicals and energy
group into one of the sector's top performers.
His reputation as someone who produces results had spread
wide enough that news of his move to SGS SGSN.VX sent shares
in the Swiss inspection and certification firm up more than 8
percent and those in Lonza down nearly 2 percent in 2002.
The following two years saw Marchionne turn SGS into one of
the best performers on the blue-chip Swiss Market Index by
slashing management and boosting margins.
Impressed by his achievements, Italy's Agnelli family, an
SGS shareholder, invited him to try his hand at Fiat in 2004.
"I like to fix things and to be blunt, Fiat needs a fix
right now," he told a news conference after his appointment as
chief executive of the group, whose survival was in doubt.
Marchionne's first task was to take Fiat out of a bad
relationship with GM, which included a cross-share ownership and
cooperation on engines and models for the European market.
Aware of GM's desperation to free itself of the obligation
to buy Fiat's car business as dictated by the terms of their
alliance, he got GM to pay $2 billion to end the affair.
Marchionne then turned his attention to Fiat.
He flattened an inflexible hierarchy, got rid of entire
levels of middle managers and instilled a meritocracy.
He took a knife to costs, drastically reducing the number of
car platforms and the time to bring new models to market.
Following the industry trend, he formed joint ventures to
share development and production costs with an aim of becoming
as efficient as Toyota Motors (7211.T), which he admires.
Confounding his sceptics, he soon made Fiat profitable
again, leading it to beat not only short-term targets but also
set new records, quarter after quarter.
The successful launch of an updated version of the
Cinquecento (500) city car in 2007 marked its recovery from near
The crisis brought this winning streak to a halt, however.
By the first quarter of 2009, Fiat was back burning cash,
juggling a huge debt and running a loss.
(Editing by Jon Loades-Carter)